Eight signs of a great car finance deal

11 July 2016by Christofer Lloyd, Finance Editor

Zero-percent APR deals offer great value

Small deposit and low monthly payments possible

Choose whether to buy the car or hand it back

Chances are you’re accosted by dozens of car finance ads every day – with low monthly payment figures plastered across billboards, websites and TV commercials. While some of these finance schemes offer spectacular value, some are nothing more than a very pricey way to borrow a car – and it’s not always obvious which is which.

To help you work out which deals get you into the car you want for a price your bank account will thank you for, there are a number of key things to look out for. These vary from the interest rate to how many miles you’re allowed to cover before being stung with excess mileage charges.

1) Zero-percent APR

Bag the car you’re after on a zero-percent APR finance deal and you’ll pay no premium for spreading payments over several years. Whether you have enough cash to pay for the car outright or not, a zero-percent offer can be a wise way to get a great car for a great price.

Choose a £20,165 Mazda 3, for instance, and – if you can afford the £337 monthly payments (with no deposit) and have the cash flow to leave £20,000 in a high-interest current account – you could earn £1,700 in interest over the three-year term.*

2) Large deposit contributions

Manufacturer contributions to your deposit can mean the difference between a pricey high-interest finance offering and one that is cheaper than buying a car in cash – if you choose to buy the car outright. Shop around and you can even find substantial discounts on zero-percent APR offers.

Take the Mazda deal above; despite interest-free credit, you can still benefit from a £1,000 deposit contribution, slashing monthly costs and meaning you pay less overall if you want to take ownership of the car at the end of the contract.*

3) Small deposit needed

If you’ve got a steady income, but don’t have a big lump sum to hand, low- or no-deposit deals can get you into an upmarket model, without having to save up for months.

With several companies offering zero-deposit, zero-percent APR deals, going for one of these needn’t cost a premium. If interest is being charged, however, be aware that the bigger the deposit you put down, the less interest you’ll be charged.

4) Low monthly payments compared with the value of the car

Seeing the cost of a car split into monthly payments might make it look affordable, but that doesn’t mean all finance schemes offer good value. While a £19,880 Citroen C4 may cost £391.65 per month, you could get a £32,995 Audi A6 for £379.18 (with the same deposit and contract terms) – and it’s the latter that gives you more bang for your buck.*

Monthly costs are dictated by how well a car maintains its value as it gets older – the more value it retains the cheaper it will be every month. Low monthly costs are great news if you plan to hand the car back at the end of the contract. Add up the deposit and the total number of monthly payments and that’s how much you’ll have to pay overall (provided the car is under the contracted mileage limit and in good condition when you hand it back).

5) Low overall cost to buy the car

If you want to own the car at the end of the contract it’s worth working out the total amount payable – by adding the deposit, monthly payments and optional final payment – taking into account any manufacturer contributions and fees charged to purchase the car. Compare the total cost with the list price and you can see how much of a premium you have to pay for the finance.

While the Citroen above will cost £569 more than the Audi if you hand both back at the end of the contract, you’d have paid an additional £7,715 if you bought the German car. Despite this, the Audi finance deal will save you well over £3,000 on the list price, while the Citroen is £2,000 more than the list price.*

6) Flexibility

PCP car finance differs from car leasing by giving you the option to buy your car outright or hand it back at the end of the contract. You may not plan to keep the car, but this flexibility means that you’re covered if your circumstances change during the contract and you want to keep your car.

Similarly, you’re not tied into buying the car as you are with Hire Purchase schemes. In many cases car manufacturers offer greater incentives on PCP deals than other finance formats, meaning that this can be the best value way to put a new car on the drive.

7) Freebies including fuel, insurance and servicing

Whatever car you go for, you’ll have to dig further into your pocket to fund fuel, insurance, servicing and other running costs – unless these are thrown into the finance plan. Volkswagen is currently offering a year’s free insurance on the Polo hatchback, while Skoda is offering £750 worth of free fuel across the range until July 18.*

Some offers provide better value than others, so whatever extras are included, it’s worth totting up the total cost and seeing how it compares with rival models or cheaper deals that don’t include the same freebies.

8) Reasonable mileage allowance

Car companies use several tricks to shrink their headline monthly PCP figures. Mileage is one of these, with many brands advertising costs for 6,000-mile-per-year contracts. If you cover a higher mileage you can expect to pay much more than the advertised cost.

While you could get a Jaguar F-Pace for £551 per month if you cover less than 6,000 miles per year, for instance, this jumps to £646 if you expect to cover an average of 20,000 miles per year. Be aware that excess mileage charges for passing the agreed mileage cap are likely to be much higher than simply paying a slightly increased monthly cost for a higher-mileage contract.*

Want to find out more about car finance? Take a look at the links below:

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week.